This annual Financial Condition Report (“FCR”) for the year ended 31 December 2017 has been prepared for MS Amlin AG (“MS AAG” or “the Company”). MS Amlin AG is a wholly owned subsidiary of MS Amlin plc. On 1 February 2016 Amlin plc and its subsidiaries (together the “Group”) was acquired by Mitsui Sumitomo Insurance Company Limited (“MSI”) and its ultimate parent became MS&AD Insurance Group Holdings, Inc. (“MS&AD”). On 31 December 2016 as part of a reorganisation within MS&AD, MS Amlin plc sold 100% of its interest in the issued share capital and voting rights of MS Frontier Reinsurance Limited (“MSF”) to the Company, in exchange for one share in the Company immediately before a legal merger was effected between MSF and the Company. The merged entity continues to operate under the legal name MS Amlin AG.
Basis of preparation
This Financial Condition Report has been prepared in line with the requirements as set out in the Swiss Financial Market Supervisory Authority (“FINMA”) Circular 2016/2 “Disclosure – insurers”. The circular expands on Articles 111a and 203a of the Insurance Supervision Ordinance (ISO; SR 961,011) on the FCRs of supervised insurance companies, groups and conglomerates. This report is to meet the regulatory reporting requirements of MS Amlin AG, and for no other purpose and should not be relied upon for any other such purpose.
Financial information included in this report is based on MS Amlin AG’s 2018 Swiss Solvency Test’s (“SST”) Market Consistent Balance Sheet (for Balance Sheet financial information) and the 2017 IFRS Annual Report, (for Profit or Loss information); both have been prepared in accordance with their relevant regulatory or accounting standards. Unless stated otherwise, this report represents the position of MS Amlin AG as at 31 December 2017 only and will not necessarily reflect all changes in MS Amlin AG’s operations since that date. All quantitative information in this report is disclosed in USD, MS Amlin AG’s functional currency.
Business and Performance
The Company is incorporated in Switzerland and is headquartered in Zurich with branches in Bermuda and Labuan, Malaysia. The Company is supervised by FINMA, with the Bermuda branch also registered under the authority of the Bermuda Monetary Authority (“BMA”), and the Malaysia branch under the authority of the Labuan Financial Services Authority (“LFSA”).
The operation in Zurich was set up to write European non-life reinsurance from Zurich. It offers comprehensive reinsurance solutions over all non-life classes and products.
Through the Bermuda branch, the Company carries out reinsurance business principally on a geographically spread catastrophe and property account. In addition, Syndicate 2001 (“the Syndicate”), a Lloyd’s Syndicate managed within the MS Amlin group, has placed a number of intercompany reinsurance contracts with the Company. These intercompany reinsurance contracts are:
- a number of proportional treaty and excess of loss contracts covering cessions of various classes of business; and
- a whole account quota share which covers a specific cession from all classes of business written by the Syndicate, including marine, non-marine, aviation and UK commercial on a global basis.
The operation in Labuan stopped writing business in early 2018 and has been put into run-off. Historically it carried out reinsurance business made up of principally excess of loss and proportional business geographically located in East and South East Asia.
The Company formerly had a wholly-owned subsidiary in Singapore, which carried out activities relating to the provision of catastrophe modelling services, but this subsidiary was dissolved during 2017 and its activities and staff combined with the existing modelling function of MS Amlin plc.
System of Governance
The Company operates a two tier board governance structure with the Supervisory Board made up of directors who are not actively engaged in the day-to-day management of the Company, of which at least two shall be independent of the Company. The Supervisory Board appoints a Chairman from its members.
The Executive Board is the Company’s managing body and shall consist of the Chief Executive Officer (Chairman) and other senior officers and managers of the Company. These appointments are at the discretion of the Supervisory Board.
The Supervisory Board also appoints Board Committees for specific purposes from among its members. Currently these committees comprise:
- the Audit Committee;
- the Risk and Solvency Committee; and
- the Nomination Committee.
The Company has a “Fit & Proper Standard” which sets out how the organisation ensures that senior management and other key function holders are fit and proper in accordance with both internal and external regulatory requirements. This Fit & Proper Standard is set at the Group level and is adopted by the Company as an MS Amlin Group subsidiary.
The Company’s Risk Management Framework is aligned with the system implemented at the MS Amlin Group level. Risk management is an integral part of business planning. Risk management objectives seek to bring business strategy, capital management, and enterprise risk management together to optimise the relationship between these elements to achieve the best long-term sustainable outcome for shareholders, insured parties, employees and other stakeholders. As part of the Risk Management Framework, risk tolerances are monitored and reported on a quarterly basis to the Company’s Risk Committee and Boards.
As part of its risk management system MS Amlin AG conducts, at least annually, an Own Risk and Solvency Assessment (“ORSA”) taking into account its risk profile, business strategy and related capital requirements. The Company performs its ORSA independently from the Group. The ORSA is fully embedded into the overall Risk Management Framework and is aligned to capital strategy and business planning related processes.
The Company operates a system of internal controls. These internal controls contribute to meeting various objectives, including operational effectiveness and efficiency, reliable financial reporting, compliance with laws and regulations and management of reputational and strategic risk.
The Internal Audit function is a centralised MS Amlin Group function servicing MS Amlin AG. Its independence and objectivity are guaranteed through direct reporting lines to the MS Amlin AG Audit Committee and Supervisory Board. The Supervisory Board has delegated its responsibility for overseeing the internal audit activity to its Audit Committee. The Internal Audit function’s programme of work is based on an annual audit plan compiled by the Chief Internal Auditor and presented to the MS Amlin AG Audit Committee for approval annually.
The Company has a dedicated Compliance function as part of its management structure. The role of the Compliance function is to provide assurance to the executive management and the Boards that the Company complies with all regulatory requirements, associated laws, and relevant MS Amlin policies. The Compliance function reports to the MS Amlin AG Audit Committee regarding progress against the Compliance Plan and Compliance Monitoring. The Compliance function also reports to the MS Amlin AG Risk Committee on regulatory returns, integrity risks and regulatory updates.
MS Amlin AG has a local actuarial team supported by the group actuarial function in some areas. The core actuarial function focuses on providing capital modelling and reserving services. The pricing actuaries report directly to the underwriting function and there is close co-operation between the pricing actuaries and the core team in the areas of business planning, reserving and setting of technical pricing standards.
Risk Management
MS Amlin AG’s vision and core values provide the strategic focus for the risk management system to deliver “effective risk management which optimises return for the risks we take” with the objective to deliver longterm value. This is achieved by actively seeking and accepting risk while managing that risk within acceptable bounds.
This Risk Management Framework has four key elements:
- Governance from Boards, Risk Committee and the accountability of management;
- Risk policy and clarity of risk appetite and tolerances;
- Risk identification and assessment;
- Reporting processes to drive action and enhancement of MS Amlin AG’s management of its risks.
Valuation for Solvency purposes
The MS Amlin AG SST 2018 Capital Ratio described in detail later in this report is 206%, which compares favourably with the minimum FINMA SST solvency requirement of 100%. The SST One-year risk capital is USD 882.2m, the risk margin is USD 120.1m, the Target capital is USD 1,002.3m and the SST Risk Bearing Capital is USD 1,937.4m. Please note that the SST 2018 was filed with FINMA on April 2018, simultaneously to this document.
As described throughout this document, the MS Amlin AG SST Target Capital continues to be dominated by the risk of natural catastrophe losses. This is to be expected and in-line with the Company’s business model, with property catastrophe business remaining the largest single business class.
The relevant measure of available own funds is the Risk Bearing Capital (“RBC”) calculated on the SST market consistent balance sheet. MS Amlin AG has net assets under IFRS of USD 1,767.8m as compared to USD 1,937.4m net assets based on SST market consistent balance sheet.
The adjustments made to move from IFRS balance sheet to SST market consistent balance sheet are set out below:
